When it comes to paychecks, there’s a big difference between ‘gross’ and ‘net’

If you have children who finished their schooling and started real jobs this summer, they have been getting a taste of something you’ve known for years.

There’s a big difference between gross pay and net pay.

Never mind that you’ve probably had a conversation at some point with your kids about taxes and take-home pay. But there’s nothing like pulling down that first full-time paycheck to drive home the impact of just how much of your salary disappears to cover all the taxes.

As one newly employed college grad told me, “Now I understand why people complain so much about taxes.”

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Even if your 20-somethings had held down part-time jobs and were accustomed to seeing Uncle Sam’s bite, this may be the first time they’ve had money taken out of their paycheck for employer-provided health care, other insurance, a retirement plan and other benefits.

It can be disheartening — at least temporarily — to see the actual amount on the check not correspond to what was expected when the job offer was made.

Don’t get me wrong: Paying taxes is part of our obligation to society. But this is probably not the time to be lecturing your newly minted worker about the fairness and flaws of our tax system.

However, it is definitely a good time for a few financial planning pointers.

▪ If your child is still mulling over a salary offer, it never hurts to ask the employer’s human resources department for at least a ballpark estimate on what take-home pay will look like after deductions for taxes and fringe benefits. There are also online calculators, including one from Bankrate.com, that show you how the numbers line up.

▪ Don’t make early spending decisions, such as signing a lease for an apartment, based on the higher gross amount of income. That could seriously crimp your cash flow.

As a rule of thumb, for example, financial planners recommend limiting housing and utilities to no more than 30 percent of your net take-home pay.

▪ If money is tight, consider adjusting your withholding on your federal W-4 form that you filled out when you took the job. This form sets the amount of federal income tax to be taken out of your salary. But be careful. Trimming your tax withholding from one to zero, for example, may put more money in your pocket now, but it could also cause bigger problems down the road come tax season.

▪ There are, of course, upsides to workplace-related tax issues that young workers should seriously consider, such as health savings accounts, flexible spending plans that help defray medical expenses, and 401(k) retirement accounts. With the retirement accounts, put in as much as possible, especially if your employer matches contributions up to a specified limit.

What can parents do?

Reassure your young worker that there will be money left over at the end of the month if he or she follows a spending plan (aka a budget). And for times when money gets really tight, there are ramen noodles.